East Asia remembers last crisis as it braces for new one

BEIJING _ More than a decade after its last major economic crisis, East Asia is spooked by the prospect of a new global financial storm coming its way.

Some are putting a lock on their wallets, shunning the fancy banquets that are a tradition in Asia, cutting back on taxis, even buying gold to hedge against calamity.

As fear spreads, it's stoking memories of the 1997 Asian contagion, when currencies collapsed, confidence evaporated and ordinary citizens scrambled to prevent their savings from vanishing.

"I really see the behavior all over again," said Roger Groebli, head of financial analysis for LGT Capital Management's office in Singapore. "They are canceling holidays. They stop consuming. They really are scared."

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While their leaders plead for a vote of confidence, some Asians have psychologically prepared themselves for economic turmoil, bracing for the hard times they fear lie ahead.

"Many people in Korea are worried about the worldwide financial shocks," President Lee Myung-bak said while presiding Tuesday over a weekly Cabinet meeting, according to the quasi-official Yonhap news agency. "At a time like this, the public should have confidence in the government and muster their strength and wisdom."

Some analysts say South Koreans have reason for concern. Their currency, the won, touched a seven-year low during the day. It has tumbled 30 percent so far this year.

"Korea has a big property bubble, and it's going to burst. Its industry is losing steam," said Andy Xie, a Shanghai-based analyst who is Morgan Stanley's former chief Asian economist.

Anecdotal evidence indicates that consumers and corporations are slowing spending in the face of a potential downturn. The wealthy are among those putting off buying.

In Hong Kong, which historically has more Rolls Royce automobiles per capita than any other place on Earth, the local dealership is empty.

"I asked our sales staff if any potential deals might be close to materializing. Usually, there is at least something cooking, but there was nothing," Leon Roy, the general manager, told the South China Morning Post newspaper this week.

Japan may prove to be an island of hope for the region as investors turn their interest toward its currency, the yen, which is appreciating steadily with the nation's rock-bottom interest rates.

Still, the Bank of Japan warned Tuesday of "substantial uncertainties" in the global outlook, and large corporations in the nation have begun to tighten their belts.

"Any major Japanese group is cutting back so fast and sending out emails saying (everything) from taxi rides to restaurant meals are off," said Martin Schulz, senior economist at Tokyo's Fujitsu Research Institute.

Xie said consumer and corporate reaction to news of global financial turmoil is understandable given the pillar-shaking economic meltdown that hit East Asia in 1997 and 1998, set off by speculators attacking currencies of nations with heavy debt and low reserves.

Those were traumatic years for Asia, Xie said. “A whole generation was affected by it," he said. "People are buying gold, and they are keeping it under their beds."

Backed by foreign reserves of $1.8 trillion, China has the means to calm the seas during the current turmoil. And with carefully controlled media, ordinary Chinese have been given little insight into Beijing's outlook on the turmoil, other than careful statements wishing Washington success on the bailout of Wall Street.

But China has much at stake in any global slowdown. Exports account for 40 percent of its economic output, and a recession in the U.S. and Europe could put a major drag on growth of the world's third-largest economy.

For the second time in less than three months, UBS lowered its forecast for China's gross domestic product growth in 2009, saying a global slowdown would slow growth to 9.6 percent this year and 8 percent next year.

While such growth is still fast, Morgan Stanley economist Qing Wang warned in a research note of potential trouble in the property sector in China, "which would lead to a massive collapse in real-estate investment."

Real-estate transactions across China are already falling to record lows as potential homebuyers wait to see if prices slide.

"Right now, a lot of people are riding the fence on buying property. They are waiting for further price decreases due to the financial crisis," said Shan Tao, a real estate agent in Beijing with the Lianjia real estate firm.